Insolvency Bulletin: May 2014
Our case commentaries cover cases from the highest Court in Hong Kong, the highest Court in Australia, the Privy Council, as the highest court of appeal from the British Virgin Islands and the European Court of Justice as well as the most important English cases of the year so far. We also have a quick look over the spate of schemes of arrangement and reconstructions which have been before the Court recently, including Vodafone and the Co-operative Bank. Our commentaries show how, once again, many of the insolvency cases before the English Courts have cross-border elements.
In Moulin Global Eyecare, the Hong Kong Final Court of Appeal, including Lord Walker, considered the House of Lords decision in Stone & Rolls v Moore Stephens. Lord Walker had delivered one of the majority speeches in Stone & Rolls, so it is noteworthy that he described his own reasoning in that case as wrong – insofar as he had held the fraud exception to the rule of attribution of knowledge to a company to be of general application. This decision, if followed in England and elsewhere, would clear up some of the confusion which has followed Stone & Rolls in relation to claims by a company after its control moves from a fraudulent director to a liquidator.
Late last year in Willmott Forests the Australian High Court considered the conflict between land law and insolvency law and concluded that a liquidator did have the power to disclaim a lease even if that terminated the tenant’s proprietary interest. It will be interesting to see how this decision, which some will consider an erosion of the principles of land law, will be followed and interpreted in England and elsewhere.
Lord Sumption gave the opinion in Fairfield Sentry in the Privy Council overturning both the first instance judge, Bannister J, and the BVI Court of Appeal in this claim by the liquidators of an investment fund whose former members had redeemed based upon documents which, Lord Sumption held, were to be treated as certificates of NAV, upon which the former members had relied and which therefore bound the fund.
Schmid v Hertel shows, once again, the wide interpretation that the ECJ will place on EU Regulations to ensure they have universal effect. In this case the Court held that EU Insolvency Regulation allows proceedings (to set aside transactions) against defendants resident in non-member states. So a person transacting with a debtor whose COMI is in a member state may, on the debtor’s insolvency, be subjected to proceedings under the law of the debtor’s COMI even if the contracting party is outside the EU.
In England the Court of Appeal gave the long-awaited decision in Game Station, reversing the much-derided decisions in Goldacre and Luminar and permitting administrators to treat rent as accruing from day to day even if payable under the terms of the lease in periodic instalments in advance. In re Casa Estates, the Court of Appeal gave guidance and illustrated the practical operation of the cash-flow and balance tests of insolvency in tandem since the decision in Eurosail. A third Court of Appeal decision, Price v Davis, considered the operation of the provisions on IVAs in the usual situation of a suspension of creditors’ approval at a meeting, pending a second meeting. Debts incurred by a creditor in the interim could not form the basis of a bankruptcy petition. Our final Court of Appeal decision in this edition is re D&D Wines in which the Court held that the termination of an agency upon an agent company entering administration did not terminate the company’s right to collect money for past sales. The result might be unfortunate for the principal but was a consequence of their arrangements.
The case of re Brown Bear Foods shows that, in an exceptional case, the Court might refuse to put a company into administration even if the application is unopposed. The Court’s discretion, it should be recalled, is a true discretion.
The liquidators of Saad Investments, a Cayman company whose liquidation had been recognised in England, brought proceedings as of right against a listed Saudi public company for a declaration, under s.127, that a transfer of shares to it by a man alleged to have held the shares on trust for the insolvent company, was void. The defendant sought and obtained a stay of the proceedings on the basis that Saudi Arabia was the more appropriate forum; Saudi law was the proper law of the underlying transactions which led to the conclusion the s.127 claim failed because Saudi law does not recognise the distinction in trust law between legal and beneficial ownership.
In Salliss v Hunt a trustee in bankruptcy was denied the chance of changing the basis of his remuneration from a percentage to a time-spent basis. The bankrupt sought an annulment to which, the Court held, he was entitled notwithstanding that the petitioning creditor had not been paid – having not submitted a proof.
There have been a number of high-profile schemes of arrangement and company reconstructions which have come before the Court in recent months and we comment upon five of the more interesting legal decisions in this newsletter.